European equity markets continue to make upward progress, hitting new highs again and outperforming US equities in the process.
US equity markets fell with investor sentiment impacted by tariff concerns and negative economic data.
Asia Pacific markets lost ground over the month, but China rallied.
February saw mixed global markets: European equities hit new highs on strong earnings and Ukraine ceasefire hopes; the BoE cut UK rates to 4.5%, boosting the FTSE. US markets struggled with tariff concerns and inflation. Chinese equities rallied, while Indian and Japanese markets faced setbacks. Emerging markets had varied outcomes, with gains in Latin America and parts of Europe.
European equities rose in February, driven by strong earnings and hopes for a Ukraine ceasefire. Eurozone inflation fell to 2.4%, easing European Central Bank (ECB) concerns. The Eurozone Composite Purchasing Managers’ Index (PMI) remained flat at 50.2, with manufacturing still contracting. In Germany, Friedrich Merz's CDU won the election with 29%, while the far-right AfD surged to 20.8%. The SPD had its worst performance in decades with 16.4%. Investors expect two more ECB rate cuts this year, but a pause in April is possible.
The UK equity market rose in February, with the FTSE 100 hitting new highs. The Bank of England (BoE) cut rates to 4.50% and forecasted 0.75% growth for 2025. UK inflation increased to 3.0% in January, driven by higher airfares and school fees. Wage growth accelerated, with average total pay up 5.9%. Consumer confidence and retail sales also improved.
US equity markets fell in February, with the S&P 500 impacted by trade tariff concerns and weak data. Consumer discretionary, communication services, and tech sectors lagged, with the Magnificent 7 having their worst month since December 2022. US inflation rose to 3%, driven by higher egg prices. The Federal Reserve (Fed) held rates steady, awaiting further inflation improvements. The US added 143,000 jobs, and the unemployment rate fell to 4.0%. Consumer confidence and PMI both declined.
Chinese equities rose on strong tech earnings and a supportive meeting with President Xi. Indian stocks fell due to weak earnings and rupee depreciation. Taiwan's market dipped on AI tech concerns. Korean stocks rose with Samsung's buyback plans. Japan's market declined amid US tariff concerns. Australia's market fell on weak Chinese data, despite the RBA's rate cut to 4.1%. The Bank of Japan (BoJ) may adopt a more hawkish stance due to rising inflation.
Latin American equity markets advanced, led by Chile and Colombia, while Brazil lost some of January's gains. Economic activity and labour market indicators remain strong, but inflation is above target levels. Chile's market benefited from stable copper prices. Mexico's stock market performed well, though potential changes in US trade policy pose a risk. Emerging European equities rose on hopes of a Ukraine peace agreement, despite inflation concerns. South African equities increased with rising gold prices. ASEAN markets declined, with Singapore predicting slower growth.
Government bonds rallied in February amid US/Europe tensions and weak US data. US treasuries returned 2.24%, UK gilts 0.81%, and German bunds 0.62%. US retail sales dropped 0.9%, and consumer confidence hit an 8-month low. Eurozone inflation fell to 2.4%. UK interest rates were cut to 4.5%. Corporate bonds performed well, with dollar investment grade returning 2.03%.
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Emerging market local debt | Monthly macro insights
Each month, our experts share their views on the emerging market (EM) local debt asset class. Read their outlook and discover which markets they believe are presenting the most attractive opportunities.
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